Information Technology — Off-Shore Outsourcing

Client Business Issues:

After rapid growth over recent years, our client was eager to begin enhancing the operational efficiency of their IT organization. In the Application System Maintenance (ASM) area, satisfactory performance had been provided through a combination of in-house resources and outsourced service provided by a single offshore vendor that our client had utilized over the previous three years.

Even with this offshore provider, in-house ASM operational costs exceeded $28 Million annually and required a staff of approximately 90 FTE’s. A clear opportunity for cost-reduction through off-shore outsourcing continued to go unrealized. Because the existing transaction structure with the offshore provider did not promote true partnership or provide any incentives for the vendor to champion cost reduction strategies, a new ASM operating model needed to be developed, analyzed and implemented.

Our Approach:

To help achieve these goals the Arc Partners team assisted this client with the development of a program to design and implement a new operating model to support the outsourcing of development, maintenance and support activities. Specifically Arc Partners assisted this client by:

Defining and documenting the future vision of the operating environment including the identification of alternative operating environment scenarios.

Creating and managing the identification, evaluation and selection of potential providers, including the development of a request for proposal, prescreening of vendors, evaluation of vendor responses, and evaluation of vendor presentations.

Developing cost models to evaluate various alternatives and to support the anticipated saving.

Designed and implemented new service level agreements (SLAs) with specific function points and metrics enabling a fixed fee relationship with the vendor. Prior to this effort a variable fee relationship was in effect.

Value Received By Client:

The offshore outsourcing team is currently completing the vendor selection and evaluation efforts. Based on the evaluated scenarios the client anticipates reducing their in-house and offshore ASM costs from $84 million (over the next 3 years) to approximately $56.6 million, a reduction of $28 million.